Friday, January 20, 2012

“Are we keeping up with you?” That was the chant aimed at Nigel Adkins by Brighton and Hove Albion fans after a particularly ill-advised comment made by the Southampton manager during last season’s League One promotion tussle. As it turned out, Southampton finished second to the Seagulls, but crucially achieved their primary objective of promotion to the Championship.

In truth, that has been one of the few mistakes made by Adkins, whose side currently sits proudly atop the Championship league table, threatening to emulate Norwich City’s feat of back-to-back promotions that propelled then from League One to the Premier League in two seasons.

Adkins’ managerial vision and ability to build a team was established at Scunthorpe United, where he moved up from the role of club physiotherapist to twice secure promotion to the Championship, an impressive achievement on a shoestring budget. After joining Southampton in September 2010, some feared that he would not repeat these accomplishments at a bigger club, but so far they have been disappointed, as the positive momentum has been maintained in the higher tier, largely with the same group of players that got them out of League One.

"Making plans for Nigel"

Not only do the Saints lead the Championship, but they are also the division’s highest scorers, mainly thanks to the experienced forward duo of Rickie Lambert (73 goals since being bought from Bristol Rovers in August 2009) and David Connolly. The midfield creativity is provided by England Under-21 international Adam Lallana, one of the top young prospects in the country, and the Brazilian Guly Do Prado, snapped up from Cesena in Serie A.

For the first time in a while the future looks bright at Southampton, following the acquisition of the club out of administration in July 2009 by Markus Liebherr, a wealthy German businessman based in Switzerland. The football club was days away from going out of business, as the bid from another consortium had collapsed, so it is no exaggeration to say that Liebherr rescued the club. His investment initially provided much needed stability off the pitch and then the funds to start rebuilding the playing squad. Although the new owner sadly passed away in August 2010, his legacy continues to fund Southampton’s recovery.

Before the arrival of the new ownership, it had largely been doom and gloom in recent years for Saints fans, starting with relegation from the Premier League in 2005. This came as a huge blow to a club that had graced the top flight for 27 straight years, finishing as high as eighth and reaching the FA Cup Final (where they lost to Arsenal) just two years earlier in 2003. Further back, they actually won the FA Cup in 1976 (when the competition still meant something), memorably defeating Manchester United 1-0 with a goal from Bobby Stokes.

"Markus Liebherr - international rescue"

Relegation was all the more painful, as the club was taken down by Harry Redknapp (belying his Houdini reputation), who had previously managed bitter rivals Portsmouth. Southampton failed to bounce back, though they came close in 2007, when George Burley’s team lost a dramatic penalty shoot-out to Derby County in the play-off semi-final.

This really stretched the club’s finances, as some players were retained on Premier League wages, and more money was spent in order to mount a further challenge for promotion to the Premier League, but the decline continued apace. After Burley left to become Scotland manager in January 2008, Nigel Pearson took the reins, but the team only avoided relegation on the final day of the season.

Due to the financial constraints, Pearson’s contract was not renewed, as the club went down the route of employing little-known, cheap Dutch managers, first Jan Poortvliet, then Mark Wotte. Although they produced some good football, the need to focus on young players led to inconsistency and the club’s problems were compounded by a further relegation to League One in 2009.

While the 2006 annual report drily noted, “the financial dynamics of today’s football industry mean that it is a priority to be a member of the Premiership”, former chairman Rupert Lowe was somewhat more pithy, describing relegation from the top tier as a “catastrophe”.

"Whoa, whoa, Guly"

From a financial perspective this was undoubtedly true, as the club had to confront a huge reduction in revenue, especially after the parachute payments ran out. This was exacerbated in Southampton’s case by the need to service the mountain of debt incurred as a result of building the new stadium at St Mary’s, which was a luxury they simply could not afford outside the Premier League, especially as crowds started to fall without the attraction of top flight football.

Southampton’s problem was that they continued to operate as a Premier League club without the money. If a relegated club adopts such a strategy, it is imperative that they return to the lucrative top tier within a short timescale or they will be in trouble financially (unless they have a benevolent benefactor) – and that’s exactly what happened to the Saints.

They have attempted to shore up the finances by selling players, but that sent them into a vicious circle, whereby they sold players to raise the funds needed outside the Premier League, but that reduced their chances of getting back to the Premier League, as they then had to rely on less talented players plus youngsters from their Academy. The club’s directors appreciated this dilemma, “player sales will undoubtedly diminish Southampton’s prospects of achieving promotion”, but they had few other options.

The player sales took a couple of distinct stages. Initially, many players left straight after relegation from the Premier League, including Peter Crouch, Antti Niemi, Kevin Phillips and Nigel Quashie.

"It's Hammond time"

Thereafter, top clubs continually plucked youngsters from the Academy, most notably Theo Walcott and Gareth Bale. Former chairman, Michael Wilde, explained, “It is not beyond the realms of possibility that at some stage in the future we will be required to dispose of some of our better young players in order for the club to satisfy its banking covenants.” These financial problems were emphasised when Southampton later gave up millions of fees contingent on future appearances of Walcott and Bale in return for early payment.

This was just one example of the financial incompetence that plagued the club, partly as a result of almost continual boardroom infighting. Much of the blame for this has been attributed to Rupert Lowe, who was chairman for 10 years before resigning in June 2006 “in the hope that it would bring unity” to the club.

The hockey loving Lowe cut a rather bizarre figure at the football club. On the plus side, he delivered a magnificent new stadium, but this over-extended the club and was at the price of investing in the playing squad, which was certainly a contributory factor to the disastrous relegation, hence many fans’ obvious dislike for him. Ironically, for a club that ended up in debt trouble, it may have made more sense to spend a little more on players to have a better chance of staying in the Premier League.

"Adam Lallana - eat to the beat"

The other charge against Lowe is that he meddled far too much in the club’s football management, making numerous changes during his tenure, including some truly inexplicable appointments. The idea of recruiting England’s World Cup winning rugby coach, Clive Woodward, as Technical Director, to join forces Harry Redknapp, the ultimate old school manager, was just one example of this idiosyncratic approach.

Lowe’s board of directors was replaced by the authors of the manifesto, “Saints: Planning for Success”, including the club’s largest shareholder, Mike Wilde, who became chairman of the football club, while Ken Dulieu was appointed chairman of the holding company. They were later joined by Leon Crouch, the second largest shareholder, who became acting chairman (yes, another one) for a few months in 2007.

Yet another twist in this tortured tale came in May 2008, when Lowe teamed up with his former foe, Wilde, and returned as chairman of the holding company. He blamed the previous board for the club’s financial woes, asserting that the large player sales were a sign of their mismanagement, though he neglected to mention the impact of the significant revenue reduction following relegation, which occurred on his watch.

"Kelvin Davis - twist and shout"

In fairness, he did have a point, as Southampton should have done much better, if you consider the financial advantages they enjoyed compared to other clubs in the Championship, such as large crowds, all that money from player sales and parachute payments.

Notwithstanding Lowe’s strident criticism of his predecessors and indeed the club’s Corporate Statement (“to establish and maintain Southampton football club as a financially robust business”), the new board fared no better and it was clear that the club was struggling.

This was echoed by the auditors, who in the last published accounts (2008) of the former holding company, Southampton Leisure Holdings Plc, warned of “a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.” In particular, they noted that the company was “reliant on the continuing support of its bankers and loan note holders.”

"Put a Cork in it"

Despite the board “working tirelessly to bring our costs more into line with our dwindling revenues”, there was little doubt that additional investment was required. The finance director hit the nail on the head back in 2007, “Our financial position remains precarious and reliant on recapitalisation or promotion, or preferably both.”

There were expressions of interest from some investors, e.g. in April 2007 it was rumoured that Paul Allen, the American entrepreneur who formed Microsoft with Bill Gates, might launch a takeover bid, while an actual offer for 55% of the shares was received from hedge fund, SISU Capital, in October the same year, though that group subsequently acquired Coventry City. Given the Sky Blues’ travails, that might be considered a bullet missed.

The trigger for the club entering administration in April 2009 was Barclays’ decision to reduce its overdraft facility. For at least two years the bank had intimated that they would not passively sit by and watch the liquidity position deteriorate, but Lowe still attacked them for “sentencing the club to financial death.” However, given that this facility was reportedly cut by just £1 million (from £5 million to £4 million), that indicates just how delicate Southampton’s financial position was. Either way, Lowe admitted that administration was the best way to ensure the club’s survival, hoping that it would attract investment.

"Fonte of wisdom"

Lowe then resigned from the board for a second time with the club having debts of around £30 million. The majority of this was the £24 million owed to Aviva (formerly Norwich Union) for the construction of St Mary’s with most of the remainder being the Barclays’ overdraft. Wages were paid late for a couple of months, while the club relied on the support of its creditors and fans, whose Save Our Saints campaign raised £130,000.

Money was also raised via a fire sale of some players (Andrew Surman to Wolves for £1.2 million, David McGoldrick to Nottingham Forest for £1 million and Nathan Dyer to Swansea City for just £400,000). Inevitably, when a football club is in trouble, other clubs take advantage of this fact by paying less than players are actually worth.

Another negative result of administration was that the Football League imposed a 10-point deduction to be applied the following season in League One after Southampton’s relegation. Although the club protested that this penalty should not apply, as it was the holding company that went into administration and not the football club itself, the League rejected this argument, ruling that they were “inextricably linked as one economic entity.” Significantly, this deduction was enough for the Saints to miss out on the 2009/10 play-offs by one place.

"Jos Hooiveld - Dutch courage"

It also proved an insurmountable barrier for the Pinnacle Group, a consortium fronted by former Saints legend Matthew Le Tissier that had expressed interest in acquiring the club. They had gone as far as paying a £500,000 non-refundable deposit that gave them 21 days exclusivity to tie up a deal (and also allowed wages to be paid), but withdrew from the race, as their backers would not accept the points deduction.

Just as it looked like the club would have to fold, the cavalry arrived in the shape of Markus Liebherr, whose DMWSL 613 Limited acquired the share capital of the football club (and other group companies) from the administrators of Southampton Leisure Holdings Plc on 8 July 2009. Not only did the new owner save the club, but he also paid the debts in full, as opposed to many new owners who only pay a few pennies in the pound for debts owed, leaving many small business and public authorities out of pocket.

Liebherr’s initial statement was equally encouraging, “I believe we have a superb opportunity to rebuild this great club. This will require resources, planning, hard work and patience. We should not expect instant success, but our fans, employees and stakeholders can expect 100% commitment from me and my team.”

Importantly, Liebherr cleared the debts to the bank, tax authorities and trade creditors as part of the acquisition, replacing them with a £20 million shareholder loan that is not repayable for at least five years. This gives Southampton a major advantage compared to many other clubs that are still burdened by debt. Indeed, Football League chairman Greg Clarke has stated, “Debt’s the biggest problem. If I had to list the 10 things about football that keep me awake at night, it would be debt one to 10.”

So, the club is now financially stable, even after Liebherr’s death. His estate “is committed to the continued investment in order to achieve success for Southampton football club.” Although nobody should expect the new owners to throw money around, they have ambitious objectives, as outlined by current chairman, Nicola Cortese, “The plan remains the Premier League by 2014.”

Cortese is a key figure at the club, though has received mixed reviews. His background providing services to the sports industry at Swiss banks has not always enamoured him to the English football community, especially after he sacked manager Alan Pardew just three games into the 2010/11 season, even after he won the Johnstone’s Paint Trophy. This has been compounded by excluding press photographers from the stadium and a number of spats with former players. That said, few could argue with the club’s progress over the last two seasons.

Looking at the losses reported for the last few years highlights the need for change, as the last time that the club made a profit was in 2005. Even then, this was only £0.2 million and would have been a loss without an exceptional gain of £3.1 million from the sale of the old Dell stadium.

It’s a somewhat confusing company structure, but essentially the full picture is revealed at the holding company level. Although this entity owns many companies, the principal activity of the group is the football club, as can be seen in 2010, when the figures were quite similar: loss – holding company £9.1 million, football club £7.8 million; and revenue – holding company £14.8 million, football club £14.3 million.

Unfortunately, no accounts were produced for the holding company in 2009, because of the administration, but the football club continued to publish its figures, so we can get a reasonable idea of the trend. However, there’s another complication here, as the growth in revenue from £8.9 million to £14.3 million in 2010 is largely due to season ticket revenue being transferred from St Mary’s Stadium Limited. The other factor to be noted en passant is that the accounting close date was changed in 2006 from 31 May to 30 June, so that year includes 13 months.

Whichever way you slice the figures, they don’t look very good, especially as they have been boosted by hefty profits on player sales. This was particularly the case in the three years following relegation from the Premier League, when the club made £31 million from this activity, which is a vast amount compared to the £64 million of revenue in the same period. Major sales in that period included Crouch to Liverpool, Walcott to Arsenal, Kenwyne Jones to Sunderland and Chris Baird to Fulham.

Effectively, player sales have helped cover structural deficits. Put another way, the reported losses would have been much larger without these player sales, as can be seen in 2009 and 2010 when less money was raised from the transfer market.

Of course, the major problem for Southampton has been the declining revenue, which has fallen by two-thirds (or £30 million) from £45 million in the Premier League in 2005 to £15 million in League One in 2010. The majority of that (£19 million) hit them immediately in 2006 with the remainder coming two years later after the parachute payments ran out.

As the accounts state, “The principal risks are associated with the performance of the team and the league in which the football club operates, as revenues, particularly those from broadcasting, are substantially lower when the club is in the lower leagues.” This is equally true for match day income and commercial revenue.

That said, even after the double relegation, Southampton’s revenue was still fairly impressive. Indeed, their 2009/10 revenue of £15 million, when they competed in League One, would have placed them around the middle of clubs in the Championship that season, despite that division’s far superior TV deal.

Obviously, this particular ranking is distorted by the impact of money from the Premier League, either through direct funding or parachute payments, but we can safely say that all other things being equal Southampton will have one of the highest revenue generating capacities in the Championship. It is also worth pointing out that their League One revenue was higher than QPR and Swansea City, who both secured promotion to the Premier League the following season.

Southampton’s television revenue has been decimated from £20 million in their last season in the Premier League to around £1 million in League One. Although the pain was initially eased by two annual parachute payments of £6.5 million, they still lost £12 million on relegation. The impact was most noticeable in 2008, even though the Championship introduced a £1.3 million solidarity payment from the Premier League.

At the risk of stating the obvious, there is never a good time for a football club to be relegated, but it is fair to say that Southampton’s timing was particularly bad, as they missed out on the significant growth in TV deals, e.g. West Ham received £40 million for finishing bottom of the Premier League last season compared to Southampton’s £19 million in 2005. Similarly, while Southampton’s relegation was cushioned by £13 million of parachute payments, West Ham will receive £48 million (£16 million in each of the first two years, and £8 million in each of years three and four).

The good news is that Southampton’s TV revenue for the current (2011/12) season will be considerably higher than League One, approaching £6 million. This is mainly sourced from the Football League central distribution of £2.5 million that is made to all clubs, a £2.2 million solidarity payment plus facility fees payable each time the club is televised live.

However, the new Football League three-year TV deal that kicks off in the 2012/13 season will be £69 million lower than the current contract at £195 million, a reduction of 26% or £23 million a season, reflecting what Greg Clarke called, “a challenging climate in which to negotiate television rights.” As there was no interest from BBC, ITV or even ESPN, the only game in town was Sky, who could get away with a much lower bid. The annual reduction for each Championship club has been estimated at £766,000 by Ipswich chief executive, Simon Clegg.

Match day revenue has also slumped from £17 million in 2005 to £10 million in 2010, due to a combination of lower attendances and reduced ticket prices (e.g. cut by 20% in 2008), though the impact was partially offset by the greater number of home games in the lower leagues compared to the Premier League. In addition, match day hospitality and catering has also fallen – it was virtually halved from £2.4 million to £1.3 million following the Premier League relegation.

Attendances dropped from nearly 31,000 in the top flight to less than 18,000 in the annus horribilis of 2008/09, when corners of the ground were shut in a bid to save money, but they have been on the rise ever since the club’s rebirth. Indeed, their average of 21,161 last season was not only by far the best in League One, even way ahead of Sheffield Wednesday, but was actually the 25th highest in England, which is very impressive for a team in the third tier and highlights the club’s potential.

As does the splendid St Mary’s stadium, though this has been something of a double-edged sword for the club since the move in 2001. The £32 million cost of constructing the new ground was one of the primary factors behind Southampton’s financial difficulties, so much so that the local council at one stage entered into negotiations to buy it, but it now offers hope for future progress.

It was clear that the club would have to move from the 15,000 capacity The Dell, as this was a long way below Premier League standards, but there were worries that the club would struggle to fill the 32,690 capacity stadium, especially as this was higher than Southampton’s record crowd at the time. Nevertheless, in the last season in the Premier League, attendances never fell below 30,000. The record attendance of 32,152 was established just last October against Championship rivals West Ham in another indication that the club is on the up.

"St Mary's prayer"

All commercial revenue streams are also down contributing to a reduction in income from £7.4 million in the Premier League to £3.2 million in League One, which was not exactly what the club intended in 2006 when it “restructured the commercial side to maximise off-field earnings.”

The club’s long-standing shirt sponsor Flybe ended their deal in 2010, describing their four-year association with the club as a “rollercoaster of a ride”. Thanks to its stronger financial position, Southampton opted to play in a shirt free of sponsors in the 2010/11 season, when they celebrated their 125th anniversary with a rather wonderful red sash on a white shirt. This season, Umbro have returned to the traditional red and white stripes, with the club signing a three-year sponsorship deal with Aap3, a Southampton-based business and IT Solutions provider. The financial terms of the deal have not been officially divulged, but Sports Pro Media reported that it was worth $300,000 (just under £200,000) a year.

When Southampton were in the Premier League, their wages to turnover ratio was a very respectable 59% (using figures from the football club), but this shot up following relegation to a very worrying 105% in 2008, though it has come down to 83% in 2010. Even though Southampton have managed to more than halve the wage bill from £26 million in 2005 to £12 million in 2010, partly as a result of wage cuts due to relegation clauses in player contracts, the problem is that revenue has plummeted by £30 million in the same period.

In 2008 the wage bill actually increased following the signing of experienced (and higher paid) players and a large number of loan deals, not to mention termination payments of £0.6 million to former directors. That’s the other side of the coin when a club consistently sells its young talent: if they are replaced by older players, their salaries are invariably higher.

Wages also rose from £11.4 million to £12.3 million in 2010, which is hardly surprising given the remarkable growth in headcount: football – from 117 to 153, administrative – 48 to 60. As the costs increased by less than £1 million, the implication is that either average salaries are falling or the new employees were recruited towards the end of the accounting year.

Assuming that the wage bill remains at the same level (though it will probably have risen in the Championship), revenue would have to grow by £5.6 million to produce a wages to turnover ratio of 60%, which is not out of the question, particularly with higher TV deals and better crowds.

In addition, the holding company accounts reveal that one director was paid £600,000 in 2009/10. This is widely believed to be Cortese, who was appointed as a director on 15 December 2009, so this would imply an annual salary of well over £1 million, though a club spokesman stated that this represented remuneration for a whole year. This might sound a bit “toppy” for a League One football club, but in fairness the chairman could easily match or surpass that in a Swiss bank.

Southampton have been a selling club for a long time with net sales proceeds of £56 million in the last nine years, as purchases of £41 million were more than compensated by £97 million of sales. The impact of relegation from the Premier League is evident with purchases of £30 million in the three years before that unfortunate event, but only £22 million in the following seven years.

The analysis is a little misleading for the period since the Liebherr takeover, as the net figures are distorted by the large £12 million fee paid by Arsenal for Alex Oxlade-Chamberlain in the summer. Excluding this one transfer, the new owners have splashed out around £5 million in the last two seasons to drive their promotion bids.

Nevertheless, they can hardly be accused of simply spending their way towards success, as their net spend over the last three years is in fact one of the lowest in the Championship, a long way below the likes of Birmingham City, Leicester City, Nottingham Forest, Burnley and Brighton.

This relatively low expenditure also helps explain why player amortisation, the annual cost of writing-down the cost of a player’s transfer over the length of his contract, has fallen from £7.6 million in 2005 to £1.8 million in 2010.

The balance sheet of DMWSL 613 Limited, the snappily named new holding company, shows net liabilities of £9 million, but a few points need to be considered here, most importantly that the principal indebtedness is the £20 million loan from the owners. In addition, the players are only valued at £3.8 million in the accounts, including nothing for those developed in the Academy, while their market value in the real world is much higher - £19 million according to the respected Transfermarkt website.

Furthermore, the stadium is only valued at £9.5 million, including £3.4 million of land, after an impairment charge of £17 million was booked in the subsidiary St Mary’s Limited following the “distressed sale circumstances”.

On the other hand, the notes to the accounts reveal that there are contingent liabilities of £7.5 million: (a) £3.5 million transfer fees to other clubs dependant on number of appearances and international debuts; (b) up to £4 million to a former creditor if the club is promoted to the Premier League before 2015/16.

It is clear that the owners’ support is still crucial for Southampton’s finances. In 2010, there was a cash outflow of £13 million plus repayment of £4 million of old loans before the books were balanced by the new £20 million shareholder loan. No accounts were published for the holding company in 2009, but 2008 should have set alarm bells ringing, as the net cash outflow was £9 million, even after raising £7 million from player sales, which was completely unsustainable.

So, Saints’ fans are fortunate that they now have such a wealthy owner. Indeed, the magazine Four Four Two had the Liebherr family at number five in their 2010 Football Rich List with a fortune of £3 billion, only behind Sheikh Mansour (Manchester City), Lakshmi Mittal (QPR), Alisher Usmanov (Arsenal) and Roman Abramovich (Chelsea).

There has been some speculation that others might want to invest in Southampton now that their prospects have improved, but Cortese has firmly stated that “the club is not for sale.” He also maintained that Liebherr’s death would not derail their plans, “Nothing has changed. This is a long-term project. This was never a financial transaction. It was done with the strong belief that we can achieve something here which is going to be special.”

"Cortese - the Italian job"

This would be reinforced if the owners were to convert their loans into equity, as Mansour has done at Manchester City, but to date they have lived up to their promises. In any case, Cortese says that there would be other options if the Liebherr family decided to exit stage left, “If there's any lack of commitment, we have a plan B. I know people with money who would have the same attitude as Markus who would join us on this. But, just to underline, the commitment of the family is 100%.”

The foundations for the future have been laid with Southampton’s highly successful Academy, which has an impressive rack record in developing young talent, such as Walcott, Bale, Oxlade-Chamberlain and Lallana. Their facilities are among the best in the country, but they are investing more money to produce a state-of-the-art complex with the aim of replicating the success of Barcelona’s famous La Masia. That does not mean a string of titles, but to have half the first team coming from the Academy, according to Les Reed, the head of football development (and briefly Charlton manager in 2006).

"Oxlade-Chamberlain - give youth a chance"

Southampton spend over £2 million a year on this facility, but it looks like money well spent, as the production line continues to churn out promising players. The current crop includes James Ward-Prowse, who has already appeared for the first team, England Under-17 internationals Luke Shaw and Calum Chambers, plus Harrison Reed and Jake Sinclair.

It is too early to say what impact the new Elite Player Performance Plan (EPPP) will have on Southampton’s youth policy, but it does appear that the days of a young star moving for large sums might be coming to an end, which on the face of it would hurt the club’s finances. However, it is believed that Southampton will be one of the few academies classified as Category One, so the club might end up being a beneficiary of the new system.

If Southampton remain in the Championship, they will also be affected by the introduction of new Financial Fair Play regulations from the 2012/13 season, so they will need to balance their books fairly quickly. They should be reasonably placed for this, given the higher revenue in this division and their ability to make money from player sales, especially as they will be able to exclude costs for their stadium and academy from the break-even calculation.

Of course, it will be a whole new ball game if they gain promotion to the Premier League, where the TV money is worth at least £40 million a season. Although there is a concern that the club might eat into that higher revenue by increasing wages and other costs, the net effect is still likely to be positive. If we look at the three teams that were promoted to the Premier League in 2008/09 (using the last available figures from 2009/10), we can observe this phenomenon with Wolverhampton Wanderers, Birmingham City and Burnley, but all three of them still went from operating losses in the Championship to profits in the Premier League.

"Rickie, don't lose that number"

This explains why Southampton might splash a little cash in the January transfer window. They have already signed Japanese international striker Tadanari Lee and Spanish Under-21 international midfielder Yago Falque from Tottenham on loan, but there are also reports that they have offered an incredible £6 million to Celtic to re-unite forward Gary Hooper with Adkins, his former manager.

The weight of expectation hangs heavily on Southampton, but they have as good a chance as any of making it, as summed up by the administrator when the club was bought, “Markus Liebherr was attracted to Southampton by a number of qualities which include the club's rich sporting heritage, loyal fan base, first-class stadium and training facilities and the potential for the Saints to regain their rightful place in the higher echelons of English football.” That would be a fantastic prize for the club’s long-suffering fans. For the time being, they’re happy enough just to be once again more saints than sinners.

Thursday, January 5, 2012

As the Italian league entered its winter break, Juventus could look back on a highly successful campaign so far. Not only were they were joint leaders along with Milan, but they were the division’s only undefeated team, having won nine and drawn seven of their matches. In their best start for many years, the bianconeri have beaten both of their rivals from Milan and look poised for a return to their former glories.

Juventus have won a record 27 domestic league titles, not including two that were lost after the events of the 2006 Calciopoli match-fixing scandal, and have triumphed six times in Europe (two Champions League, three UEFA Cups and one Cup Winner’s Cup), so the current team has a long way to go before it can be mentioned in the same breath as its illustrious predecessors, but the early signs are promising.

However, nobody is taking anything for granted in Turin, especially as Juventus also started well last year before fading badly over the second half to finish seventh for a second successive season, which meant that they failed to qualify for Europe. In fact, by their own lofty standards, this has been a particularly barren period for Juventus, as they have not won a trophy for five long years.

"Conte - Shout to the top"

This season somehow feels different following the appointment of former Juventus captain Antonio Conte, who replaced Luigi Delneri in May. Although relatively inexperienced at the top level, Conte has managed to lead two clubs (Bari and Siena) to promotion to Serie A. Described by president Andrea Agnelli as “the first piece in the jigsaw to return to winning ways”, Conte has “brought a new mentality to the club”, according to the tenacious midfielder Claudio Marchisio.

The emphasis is on the team with every player working his socks off, though Conte has also impressed with his willingness to change tactics depending on the opposition. Although he is famed for his intense, attacking style, the young manager has also tightened up his side’s defence, largely with the same personnel as last season.

That said, there has been a lot of activity in the transfer market with general manager Beppe Marotta responsible for a major overhaul of the playing squad since his arrival from Sampdoria in May 2010. Although the club’s fans may have been disappointed that no major star arrived this summer after talk of Sergio Aguero, Giuseppe Rossi and Alexis Sanchez, this was compensated by the arrival of some very capable players.

"Lichtsteiner - Run, Forrest, run"

Midfield experience was recruited in the shape of Andrea Pirlo from Milan and Michele Pazienza from Napoli, while the exciting young Chilean Arturo Vidal from Bayer Leverkusen has provided much energy to the engine room. The weakness at full-back was addressed by the signing of the athletic Swiss Stephan Lichtsteiner from Lazio, while Mirko Vucinic from Roma has added some attacking guile.

The other major change this season has been the new stadium, where the fans are much closer to the action and can provide the proverbial 12th man. It is not clear how many points this has been worth to Juventus, but their record at home since the move has been strikingly good.

So this is in many ways a “Newventus”, but there are still a few important links to the club’s past. In the dressing room, this is provided by club captain, Alessandro Del Piero, who is in his final season, while the Agnelli family has long played an important custodial role. Andrea’s late father Umberto was also president between 2003 and 2005, while his uncle Gianni (“l’avvocato”) is a legendary figure at the club.

Although Juventus have shown a significant improvement on the field of play, it’s a different story off the pitch, as they reported a huge loss of €95 million for the 2010/11 season, a dramatic worsening from the previous year’s €11 million loss, when the club actually made a small €2 million profit before being hit with a hefty €13 million tax charge.

Unsurprisingly, this is the largest loss in Juventus’ history and it was described as “intolerable” by Agnelli, though he did add that these accounts were “the fruit of a desire to maintain Juve’s competitiveness.” That’s a fairly standard excuse from a director of a football club, but in fairness Juventus have paid the price for their attempts to transform the club, both through the investment in the new stadium and particularly the many changes on the staff side.

Up to this year’s annus horribilis, Juventus had made a pretty good job in balancing their books, recording profits before tax in three of the preceding four years, even when they were demoted to Serie B in 2006/07. That year, they were forced to offload many players in order to trim the wage bill, which also had the benefit of delivering outsize profits on player sales of €40 million.

"Marchisio - Black & White Boy"

Last season this activity produced €17 million profit, which is lower, but still not too bad. The real damage was done at the operating level, largely due to expenses of €195 million being considerably higher than revenue of €154 million, leading to negative EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) of €41 million, which was exacerbated by very large non-cash flow expenses of €61 million.

On the face of it, these are indeed disastrous figures, but a closer analysis of the reasons for the increase in the size of the loss provides some cause for optimism, as much of it is due to once-off factors that should not be repeated to the same extent in future years.

Of course, there are also some fundamental factors behind the larger loss, most notably the double whammy in television income, which has dropped by €43 million from €132 million to €89 million. The reduction was split evenly (more or less) between the move to a centralised sale of Italian TV rights and the failure to qualify for the Champions League, which was only very slightly offset by participation in the Europa League group stage.

Although total wages slightly increased by €2 million to €140 million, the underlying player wage bill was actually cut by €9 million, which was disguised by a €3 million rise in bonus payments and higher leaving incentive, which grew €8 million from €4 million to €12 million, thanks to pay-offs to Mauro Camoranesi, David Trezeguet and Jonathan Zebina in order to get them off the payroll.

Other once-off staff costs include a €6 million increase in the write-down of player values from €6 million to €12 million, partly for players that have already left (Tiago and Zdenek Grygera) and partly for those who no longer figure in the club’s plans (Amauri). There is also a €12 million provision for dismissed staff and a €12 million increase in the cost of purchasing temporary player rights from €3 million to €15 million (mainly Quagliarella €4.5 million, Pepe €2.6 million, Matri €2.5 million and Marco Motta €1.3 million).

Exceptional items have increased by €10 million year-on-year, as last season’s €3 million credit for the transfer of the commercial area around the new stadium has been replaced by a €7 million provision for a tax inspection for the years between 2001 and 2008. Finally, it should be noted that the 2011 figures were “boosted” by the tax charge being €11 million lower than the previous year.

All in all, this set of accounts represents a classic example of a company cleaning house, so it would be surprising if the expenses were as high the next time around, even though there may still be a few once-off charges to process.

Of course, most football clubs do make losses and Italy is no exception, e.g. in 2009/10 (the last year when we have published accounts for all the clubs), only four clubs in Serie A managed to break-even: Fiorentina €4.4 million, Catania €2.5 million, Livorno €1.8 million and Napoli €0.3 million.

So, it is perfectly understandable that Juventus made a loss, but it is the sheer size of the loss in these accounts that came as a bolt from the blue, especially as over the previous two seasons (2008/09 and 2009/10) Juventus had looked like a good example of sustainability with aggregate losses of just €4 million. That was a drop in the ocean compared to the losses suffered by the other big clubs in the same period: Milan €77 million and Inter (an astonishing) €223 million.

However, the tables have well and truly turned and it is now Juventus that have the dubious honour of the highest loss in Serie A in 2010/11 with their €95 million surging ahead of Inter €87 million and Milan €70 million.

Much of this unfortunate reversal is clearly due to the steep revenue reduction. In 2009/10 Juventus’ revenue of €205 million was not far behind Inter’s €225 million, about the same as Milan’s €208 million and importantly comfortably ahead of all other Italian clubs with Roma the next closest with just €123 million, but this was no longer the case in 2010/11. In particular, Roma’s revenue of €144 million, aided by their Champions League run, was only €10 million below Juve’s €154 million.

This will also impact Juve’s seat at Europe’s top table. In 2009/10 they were placed tenth in Deloitte’s European Money League, which would be the envy of many clubs, but is a long way short of their peers abroad. For example, the Spanish giants, Real Madrid and Barcelona, generate around €400 million, which is twice as much as Juventus, as they continue to benefit from substantial individual TV deals.

Both Manchester United and Bayer Munich also earn around €100 million more, the English taking advantage of significantly higher match day revenue, while the Germans’ commercial expertise puts Italian clubs to shame. This vast revenue discrepancy will make it difficult for Juventus to achieve their stated objective of “being a leading club in Europe”. Indeed, the revenue reduction in 2010/11 is likely to mean that they will fall out of the top ten in next year’s Money League.

Juve’s challenge is not helped by the underlying problems in Italian football. Andrea Agnelli went so far as to complain of “a penalising regulatory situation for the top teams in Italian football” where government regulations were “to the detriment of investment.”

His views were supported by a report from the Italian Football Federation (FIGC) this year that concluded, “The current business model is difficult to sustain and not very competitive.” Its president, Giancarlo Abate, noted that in particular match day income, sponsorships and merchandising were in need of urgent attention to reduce the reliance on TV money. Juve’s courageous move to construct a new stadium is very much the exception to the rule with other clubs’ revenue growth potential significantly restricted by the fact that their grounds are owned by the local council (to whom they have to pay rent).

These problems have been reflected in the lack of revenue growth of Italian clubs. In 2005 Juventus were as high as third in the Money League, but their revenue has actually declined by 33% (€75 million) since then. Milan’s revenue also fell during that period, while Inter’s growth of 32% is less than half that achieved by other leading European clubs, e.g. Barcelona 115%, Manchester United 99%, Arsenal 96%, Real Madrid 74% and Bayern Munich 69%.

Even more striking is the absolute difference between the clubs. As an example, in 2005 Juventus’ revenue of €229 million was around €20 million better than Barcelona, but it is now nearly €300 million less. In fact, this year’s revenue is only 9% higher than they generated in Serie B in 2006/07 (lower if you include profit on player sales).

The reality is that Juve’s revenue has essentially been flat for many years, only really growing when they qualify for the Champions League. The driver for the investment in a new stadium is obvious when looking at the club’s revenue mix, which shows match day income at a pitiful 8% of total revenue. That is by far the lowest of any team in the top 20 clubs in the Money League with the next lowest being the other Italian clubs (Milan 13%, Roma 16% and Inter 17%).

In 2009/10 Juventus earned an impressive €110 million from their domestic TV rights deal, which was the highest in Italy, even more than Milan €96 million and Inter €89 million, and considerably more than all other Italian clubs, e.g. Napoli, Lazio and Fiorentina only got around €40 million, which was just over a third of Juve’s income.

Years of protest at this lack of a level playing field finally led to a new collective agreement being implemented at the beginning of the 2010/11 season. There is a complicated distribution formula, which still favours the bigger clubs, though the result is a clear reduction at the top end. Under the new regulations, 40% will be divided equally among the Serie A clubs; 30% is based on past results (5% last season, 15% last 5 years, 10% from 1946 to the sixth season before last); and 30% is based on the population of the club’s city (5%) and the number of fans (25%).

Juventus had forecast that this would result in a revenue reduction of €9 million in a presentation to analysts in March 2011, but, as they admitted in the latest accounts, there was “an additional penalisation compared to what was expected” and the actual difference was a massive €23 million.

There has been much discussion over how the number of fans (worth 25% of the deal) would be calculated, but this was resolved in November. An article in La Gazzetta dello Sport suggested that this would produce an additional €4 million revenue for Juventus, but the net reduction would still be a painful €19 million.

The decrease would have been even higher if the total money negotiated in the new collective deal by media rights partner Infront Sports had not been approximately 20% higher than before at around €1 billion a year. This cemented Italy’s position as the second highest TV rights deal in Europe, only behind the Premier League, but significantly ahead of Ligue 1 and La Liga. In fact, Italy’s deal is worth twice as much as the Bundesliga.

That’s particularly impressive, given how little is received for foreign rights, though it was recently announced that the incumbent rights holder, MP & Silva, will pay an additional 30% for these rights for the three years starting from the 2012/13 season (up from €90 million a year to €115-120 million). It is still not completely clear what will happen with the 2013-15 deal for domestic rights, but €2.5 billion has alreadybeen secured from Sky/RTI for 12 of the 20 Serie A clubs, so this is likely to show a small increase as well.

One of the key risks identified in the Juventus annual report is failure to qualify for the Champions League, which “could potentially have an adverse impact on the company’s financial position and income statement.” In truth, there’s no doubt about this, e.g. in 2010/11 Juventus earned just €1.8 million from the Europa League, while the previous season they received €21.5 million from their adventures in the Champions League, leading to a €20 million fall in revenue.

The prize money for Europe’s flagship tournament increased last season, so Roma received €30 million for reaching the last 16, while Inter got €38 million for going a round further. The same is true for the Europa League, but the highest pay-out there was only €9 million. Those are just the television distributions, but there are also additional gate receipts and bonus clauses in various sponsorship deals.

Juve’s failure to qualify for this season’s Champions League will again hurt them financially, which is why it is imperative that they achieve that goal this time around. Unfortunately, their task is even more difficult now, as the Italian league has lost a place to the Bundesliga, due to lower coefficients. From this season, only the top two teams in Serie A will be assured of direct entry, while the third-placed team goes into the preliminary qualifying round. Ironically, this has been Italy’s best season in the Champions League for a while with three teams reaching the last 16 (Milan, Inter and Napoli).

Although the most popular club in Italy, Juventus have struggled to convert this support into meaningful match day revenue. This is an issue for all Italian clubs, but especially Juventus, where this revenue stream fell from €17 million to €12 million last year, largely due to €3.2 million lower fees from friendly matches. This is just behind Roma’s €19 million, but is far below Inter (€33 million) and Milan (€31 million), who generate much more revenue at San Siro.

The comparison is even worse when looking at leading clubs abroad, which is perhaps best illustrated by a comparison with Manchester United and Arsenal, who earn €126 million and €108 million respectively. This works out to around €4 million revenue a match, which is over ten times as much as Juventus (€0.4 million).

Not only do Juventus have the lowest average attendance of the top European clubs in the Money League at around 22,000, partly because many of their fans are located in the south of Italy, but this was only the 10th highest in Serie A last season, lower than clubs like Palermo and Genoa. In comparison, Inter’s average crowd was over 58,000, while Milan and Napoli averaged 50,000 and 45,000 respectively.

Of course, Juventus were limited by the capacity of their old ground, which was very low at 28,000, and this also suffered from having hardly any premium seats or corporate boxes, which are the money spinners elsewhere. This is why Juventus decided to move to a new stadium that could maximise their revenue earning potential.

A splendid inauguration ceremony took place on 8 September including a friendly match against Notts County, the team who gave Juventus their famous black and white striped shirts in 1903. The new 41,000 capacity stadium has been built on the site where the reviled Stadio Delle Alpi once stood and features 8 restaurants, 24 bars and 4,000 parking places.

"All my colours"

The atmosphere and visibility are far superior to the old ground, as the closest seats are just 7.5m from the pitch. Although not as large as some modern stadiums, chief executive Aldo Mazzia explained, “We believe that it’s better to have a stadium that’s a bit smaller but almost always full and closer to the team than to have a much bigger one that only gets sold out for a few games.” Indeed, every game to date has been a sell-out, though there have been quite a few empty seats, due to ticket agencies unable to fully sell their allocation.

The cost has increased to €150 million, including €15 million for the Juventus Museum that is scheduled to open in the first half of 2012, but it has largely been financed by two important initiatives.

First, Sportfive acquired the stadium naming rights for a guaranteed minimum of €75 million, of which €42 million has already been paid to the club and the remaining €33 million will be paid over the next 12 years in equal annual installments of €2.75 million. From 2011/12, this will be booked as €6.25 million annual revenue. Although a sponsor has yet to be identified, this is only an issue for the broker and does not affect Juventus financially. Second, Juventus sold the commercial land adjacent to the stadium for €20 million to Nordiconad, who will build a shopping area called Area 12.

"Money don't Matri 2 night"

This meant that Juventus only had to take on additional debt of €60 million, which was provided by Istituto per il Credito Sportivo. As at 30 September 2011, €52 million of this had been loaned to the club.

The new stadium looks the business in both senses of the word, as it will be a seven-day a week operation, hosting numerous events and guided tours of the museum. Indeed, the club has estimated that match day revenue will increase significantly from the current €12 million to €25-35 million, with the number of premium seats being particularly important, e.g. Arsenal make 35% of their match day revenue from just 9,000 premium seats at the Emirates.

The first quarter results for 2011/12 support these claims, as the number of season tickets rose by 61% to 24,137, which is impressive enough, but the revenue increased by 183%. Although there have been some teething troubles with the safety inspections, Mazzia predicted that the new stadium would give it a competitive advantage over its Italian rivals of “at least four or five years”, which makes sense if you consider that Juventus signed their stadium agreement with the city of Turin way back in July 2003.

Commercial revenue is not too bad at €54 million, though it is €2 million lower than2009/10, mainly due to performance clauses linked to Champions League participation. In Italy, Inter have now caught up, while Milan still do better commercially. Perhaps of more relevance is the fact that Juventus are a long way behind leading clubs abroad, e.g. Bayern Munich earn an astonishing €173 million.

This is one of the problems of being tainted with Calciopoli, as Juve’s commercial income has not yet reached the heights they achieved before those events (€75 million in 2006). In 2005 Tamoil signed a five-year shirt sponsorship deal that was believed to be the highest in football history at €22 million a season with a possible five-year extension worth even more. This was more than twice the size of any other deal with an Italian club, but was cancelled in the light of the scandal.

These days, Juventus have adopted an innovative dual shirt sponsorship strategy with BetClic paying €8 million for the first team shirt and Balocco €3.5 million for the second shirt and youth sector. Both of these deals are in their last season, so there is an opportunity to sign better deals, though Juventus have cautioned that the “current economic situation has a negative impact on the sport sponsorship market.” In contrast, the long-term partnership with kit supplier Nike has been extended until 2015/16 for an impressive €12.4 million a year.

However, the issue is that these agreements are worth much less than those at foreign clubs. For example, the following all have shirt sponsorships worth more than €20 million a season: Barcelona, Bayern Munich, Manchester United, Liverpool, Manchester City and Real Madrid.

Like all football clubs, the most important expense for Juventus is their wage bill, which was €140 million in 2010/11, split between players €127 million and other personnel €13 million. They have admirably managed to hold this at around the same level for the last three years. In fact, last season they actually cut underlying player wages by €9 million, though this was off-set by leaving incentives.

Nevertheless, the important wages to turnover ratio has worsened from 67% to 91%, due to the substantial revenue reduction. This takes it way above UEFA’s recommended upper limit of 70%, so Juve need to either grow revenue or cut costs.

Despite their efforts, their wage bill remains one of the largest in Italy, albeit a long way behind Milan and Inter, who cut theirs to “only” €190 million in 2010/11, thanks to lower performance bonuses. An analysis by La Gazzetta dello Sport this summer of salaries for the first team squad reinforced Juve’s third place in the wages league with €100 million, behind Milan €160 million and Inter €145 million, but it’s far from certain that their figures are accurate.

The other major element of player costs, namely amortisation has been on a rising trend, up from €22 million in 2007 to €35 million in 2011, though it is still less than the €52 million reported by Inter last season.

Amortisation is the annual cost of writing-down a player’s purchase price, which is booked evenly in the accounts over the length of his contract, e.g. Milos Krasic was signed for €16 million on a 4-year contract, so his amortisation works out to €4 million a year.

The growth in amortisation would imply that Juventus have been active spenders in the transfer market and this is indeed the case. Apart from the year that they were relegated to Serie B, they have been very much a buying club. In fact, over the last three seasons their net transfer spend of €129 million is the highest in Serie A with only Napoli coming anywhere close with €98 million. The next highest is Roma with €35 million, while both Inter and Milan have actually had net sales proceeds in this period.

This summer alone they splashed out nearly €90 million, though €37 million of that was due to exercising options on players such as Matri €15.5 million, Quagliarella €10.5 million, Pepe €7.5 million and Motta (yes, really) €3.75 million. In addition, large sums were spent on Vucinic €15 million, Vidal €10.5 million, Lichtsteiner €10 million and Eljero Elia (from Hamburg) €9 million.

This was part of what the club has described as the “profound upgrading of the first team” in order “to return as soon as possible to stably competing at a high level in Italy and Europe.” However, Beppe Marotta has warned that the club will not be making any big money signings in the January transfer window, which probably explains the loan signing of wayward striker Marco Borriello from Roma, though there have been faint whispers of Carlos Tevez arriving from Manchester City.

This high level of transfer activity has contributed to an increase in Juve’s debt, though the main reason is obviously the investment in the new stadium. For the last few years, the club’s focused approach meant that it actually enjoyed net funds, but financial debt was up to €121 million at the 2011 year-end. This comprised €61 million bank loans, €45 million of stadium debt to ICS (a 12-year loan at 4.383%) and €18 million of finance leases to Unicredit (mainly for the Vinovo training ground).

The financial position would have been worse without the phased payment of transfer fees, which means that Juventus owe other football clubs €63 million (though they are, in turn, owed €33 million by other clubs).

That said, they did improve their net debt by €25 million in the first quarter of 2011/12, largely thanks to a €72 million advance payment by Exor, their 60% majority shareholder controlled by the Agnelli family, which was their share of the €120 million capital increase. Exor has also undertaken to pay €9 million corresponding to the rights of LAFICO (the Libyan Arab Foreign Investment Company), the club’s second largest shareholder with 7.5%, but whose stake has been frozen as a result of sanctions applied to the North African country.

The remaining €39 million should be covered by the other, smaller shareholders, though this will require an act of faith on their behalf, as the share price is less than half the €1.30 four years ago when the club launched a similar €105 million recapitalisation. Indeed, it was €3.70 when the company was floated back in 2001.

Assuming that the money is raised, Mazzia said that it would “finance the club’s life for the next five years”, though this must assume a return to a self-financing model. Although recent years have required two sizeable capital raisings and new loans, there have been special circumstances (Calciopoli and the new stadium), so this is not entirely unfeasible, though it will require improvements on the pitch.

However, it is likely that Juventus will still have to rely on the support of Exor, which has always been forthcoming, but their fortunes to a large extent depend on the performance of their other companies, notably Fiat, which is struggling along with all other car manufacturers.

The club’s balance sheet has been weakened by last year’s gigantic loss, so it now has net liabilities of €5 million, as opposed to the €90 million net assets the year before, though it should be acknowledged that player values in the accounts are certainly lower than their worth in the real world.

From now on, Juventus will also have to confront the challenge of UEFA’s Financial Fair Play (FFP) regulations, which will ultimately exclude from European competitions those clubs that fail to live within their means, i.e. make a profit.

Fortunately, the big loss in 2010/11 is not taken into consideration, so all those cost provisions begin to make sense. That said, UEFA will take into account losses made in 2011/12 and 2012/13 for the first monitoring period in 2013/14, so Juve’s accounts need to rapidly improve.

However, they don’t need to be absolutely perfect, as wealthy owners will be allowed to absorb aggregate losses (“acceptable deviations”) of €45 million, initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount).

Although Juventus’ stated plan is “to develop a sustainable business model”, they have also admitted that 2011/12 will show another “significant loss”, though not as bad as that reported last season. Worryingly, the €26 million loss for Q1 2011/12 was actually €8 million worse than the prior year, but that is largely timing, due to fewer games played.

In terms of how their figures will look in the future, the first thing to do is to adjust for all the exceptional items in 2010/11, which would have a €43 million positive impact. This assumes: (a) no further need for provisions for tax and dismissed staff; (b) reducing (but not eliminating) charges for player write-downs, leaving incentives and temporary purchases to more normal levels.

Aldo Mazzia has stated that the revenue from the new stadium will increase to €32 million, including the doubling of gate receipts and €6 million for naming rights. This would deliver an additional €20 million revenue, though there will also be a rise in associated costs, such as new staff. In addition, the club will have to bear depreciation on the stadium investment and interest on the loans, though these are excluded for the purposes of the FFP break-even calculation.

"Vidal - Ears are not enough"

Of course, the major swing factor is qualification for the Champions League, which would be worth around €30 million, maybe more depending on progress. This helps explain the heavy investment in the playing squad, which can be considered a bet on success.

It is difficult to speculate on what will happen to the wage bill. My analysis of the arrivals and departures, based on the gross salary figures published in La Gazzetta dello Sport, suggest that there will be a small fall next year, but it is safer to assume the same level. On the other hand, player amortisation is almost certain to increase (€3 million in Q1), so I have assumed €10 million per annum. In addition, if the club qualifies for the Champions League, then bonuses should rise to previous levels, meaning an increase of €8 million.

Profit on player sales is by its nature lumpy business, but Juventus have been fairly consistent over the past four years, generating €14-17 million a season. It is therefore reasonable to assume that they will produce similar sums in future, though they might struggle to match this in 2011/12, as they reported less than €6 million from the summer transfer window. They might add to this in January, perhaps with the departures of the out-of-favour Krasic and Amauri.

All those adds and drops would produce a far more palatable loss of €18 million, which would be well within the FFP acceptable deviation. For the purposes of FFP, UEFA also exclude some expenses that are considered to represent positive investment, such as youth development (€6 million per the analysts’ presentation) and community (estimated at €2 million), which would bring the figure down to a €10 million loss.

There is yet another get-out clause in UEFA’s regulations that states that clubs will not be sanctioned in the first two monitoring periods, so long as: (a) the club is reporting a positive trend in the annual break-even results; and (b) the aggregate break-even deficit is only due to the 2011/12 deficit, which in turn is due to player contracts undertaken prior to 1 June 2010.

Although the estimates above are by no means a fait accompli, if Juventus do get reasonably close to those figures, my guess is that UEFA would look favourably on their finances, as they would clearly be moving in the right direction and setting the right example.

"Celebrate!"

This is further evidenced by Juventus’ focus on the youth sector, as seen by the money spent on the training centre. The results are clear to see with all but one of their youth teams leading their respective leagues at the end of 2011, including the important Primavera.

This investment is a sure sign that this is intended to be a long-term project. As Conte put it earlier this season, “After three months of work you cannot talk about a finished house with a roof ready.” The return to former glories is a long way off, but there is no doubt that Juventus have taken some important first steps on a long journey.

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